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There is ample evidence that the economy has weakened and continues to do so. Most recently, the Bureau of Labor Statistics (BLS) reported that job growth between April 2024 and March 2025 was revised down by 911,000 from about 1.79 million to roughly 879,000.
911,000 is a massive revision figure. It’s the largest since 2000.
This helps explain the dissonance we all have been feeling recently. Economic data last year showed a strong economy: companies hiring people, slowing inflation, GDP growth, etc. However, we all felt that the economy was sluggish. The data was telling us that everything looks great. However, the everyday person was feeling something different. It turns out that our gut and intuition were right. Few companies were hiring (or continue to hire).
If we dig deeper into the revised BLS report, the hardest hit industries were leisure & hospitality (–176,000), transportation/utilities (–226,000), professional & business services (–158,000), retail (–126,000), manufacturing (–95,000), and even government (–31,000).
So how did this happen? In short, fewer people are filling out BLS surveys, leaving a too-small sample size. State tax records take a long time to come in, and the BLS also overestimated job gains from newly formed companies.
So, Recession?
Whether or not we are headed into a recession remains to be seen. I would not be surprised that we instead see a muted/flat growth environment over the near term.
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It’s important to remember that the U.S. economy today is much more service-based than it used to be. Back then, when the economy slowed, the manufacturing-heavy U.S. was quick to fire its workers. A drop in demand for goods often meant unsold inventories piling up, which led to layoffs and a sharp rise in unemployment.
A service-driven economy doesn’t operate the same way. There is no inventory cycle that drives big swings in the employment rate. So, slowdowns tend to impact the economy differently. It doesn’t mean that we will no longer experience recessions. But it does mean that job losses and business pullbacks are usually less severe than in a manufacturing-dominated economy.
Rate Cuts
Nonetheless, the likelihood that Jerome Powell and the Federal Reserve will lower rates during their next meeting (Sept 16-17) is extremely high. It is pretty clear that the economy has been and is slowing.
Inflation has cooled, job growth is muted, and forward-looking indicators point to slowing demand. The Fed has to shift from fighting inflation to supporting growth.
This will help lower borrowing costs for both businesses and consumers, helping to boost demand. But it doesn’t quickly reverse a slowdown that is already in motion. All it will do is ease the pressure on credit markets and prevent the potential slowdown from becoming something worse.
Portfolio Positions
When the Fed lowers interest rates, that creates a tailwind for asset classes, especially for stocks and bonds. It’s not a magic bullet, but it has a history of being highly effective. I would be remiss to panic, abandon my investment strategy, and bet against the Fed. That’s never a good strategy.
The smarter play is to remember that the assumptions we are working with today can change, and the outlook can change quickly. What feels like a soft slowdown today can look very different six months from now. This is exactly why abandoning a long-term investment strategy in reaction to short-term headlines is almost always a mistake. The best course is to stay disciplined, stay invested, and let the data play out.
